As we have previously reported here, the United States National Flood Insurance Program (“NFIP”) is set to expire in September 2017, at which point surplus lines insurers may find themselves with an opportunity to fill a rapidly-evolving market. The NFIP was enacted in 1968 to offer flood insurance to homeowners, renters and business owners on the federal level; however, the events of Hurricane Katrina left NFIP heavily indebted to the U.S. Treasury. This development has led Congress to consider alternations to the NFIP framework going forward.
As such, on April 28 2016, the House of Representatives passed the Flood Insurance Market and Parity Modernization Act (the “Act”), which hopes to incentivize the underwriting of flood risks by the private sector. The Act will require certain Federal agencies to allow private insurers and reinsurers to underwrite and accept flood risks, as long as such companies comply with applicable state law. In particular, lenders would be able to accept flood coverage from private insurers and eligible surplus lines insurers in order to fulfill mortgage requirements.
Many industry experts believe that if the Act is ratified by the Senate and signed into law, surplus lines insurers will find ample opportunities to provide coverage to a constrained market. Currently, NFIP will only cover up to $250,000 in residential damage, and will not cover temporary living expenses or commercial loss of revenue. Surplus lines insurers are often in favorable positions relative to NFIP or even the admitted market to craft policies specific to an insured’s needs and can potentially broaden the scope of coverage to provide insureds greater comfort within the flood sphere. Standard & Poor’s believes that surplus lines insurers “may be willing to offer limited capacity to assume flood risk” because such insurers “can work with flexible terms, conditions, and prices.”
We will continue to monitor the Act’s progression through Congress and we will report accordingly.